Emerald Buildings and another vs Asst. Commissioner of Income Tax, Hyderabad

This Revision is filed against the judgment and sentence passed in Crl. A. No. 15 of 1995 on the file of Metropolitan Sessions Judge, Hyderabad.

Al was found guilty for the offence punishable u/s 276-C(1) of Income Tax Act. An amount of Rs.2000/-was imposed as fine in default to undergo rigorous imprisonment for 3 months. A8 was found guilty for the offence punishable u/s 277 of the Income Tax Act and was sentenced to undergo rigorous imprisonment for two years and to pay a fine of Rs.2000/- in default to suffer rigorous imprisonment for three months. A8 was also found guilty for the offence punishable u/s 276-C(1), read with Section 278-B(1) of the Income Tax Act. He was sentenced to undergo rigorous imprisonment for two years and to pay a fine of Rs.2000/- in default to suffer rigorous imprisonment for three months. On appeal, the sentence was reduced to 6 months as far as A8 is concerned. The fine amounts and the default clauses are maintained.

Hence the revision.

A2 to A15 are the partners of A1 firm. The allegation is that A8 signed the Return for the Assessment Year 1982-83, declaring an income of Rs.1,83,850/-. It is alleged that an amount of Rs.1,18,5007-was concealed. The learned Judge accepted the explanation given by the accused in respect of Rs.58,500/-. The balance of Rs.60,000/- is alleged to have been concealed. The explanation is that out of Rs.90,000/-, Rs.30,000/- was accounted for. The balance amount of Rs.60,000/- was held to be not accounted.

The case of the petitioners is that three Demand Drafts of Rs.30,000/- each were purchased. As earlier stated, an amount of Rs.30,000/- under one Demand Draft is accounted for. According to the prosecution Rs.60,000/- in the other two Demand Drafts were not accounted for. The explanation given is that the amount of Rs.60,000/- was given by DW2 towards purchase of a flat constructed by the accused-Company. The documents i.e., ledger, cash books, etc., were also filed before the Income-lax authorities DW2 was examined during the trial. He stated that he gave statement Ex.P10 even before Assistant Commissioner (2) (1). The statement together with enclosures are marked as Ex.D3. He admitted his signature in Ex.D3. He stated that as the construction was not progressing he cancelled the booking and took back the money. The money was withdrawn from Bank and the same is accounted for. The documents referred to in questions 15 to 17 of Ex.D3 were produced before Assistant Commissioner (2)-1 and they are in his custody. He clearly stated that the money paid by him was received by Sri Ratanlal Gupta on behalf of A1 firm.

The evidence of DW2 was not discredited at any measure in the cross- examination. It is not even suggested that the witness was speaking falsehood and the accounts maintained were false. In those circumstances the lower Court ought to have given credit to his evidence.

The learned Judge in para 12 of the Judgement relies upon the presumption u/s 278-E of the Act which came into effect from 10-8-1986. The assessment year in this case, as mentioned earlier, is 8982-83. Therefore, the presumption u/s 278-E is not applicable to the facts of this case. This position is made clear in the judgment of Orissa High Court in Ms, Sabori Art Printers and another v. State of Orissa, 1995 Tax LR 872. In that case, the assessment year was 1981-82 i.e., prior to the amendment which came into effect from 10-8-1986. In those circumstances it was held that the presumption as to the culpable mental state cannot be raised by invoking Section 278-E which was inserted by Taxation Laws (Amendment and Miscellaneous Provisions) Act(1986). The same is the ratio decidendi of the Judgment of Gauhati High Court in Income Tax Officer v. Sunanda Ram Deka and others, 1995 261 ITR 482, in which it was held that the presumption of mens rea u/s 278-E is not applicable to the prosecution launched before its insertion.

In view of the settled principles of law, the lower Court erred in drawing presumption u/s 278-E. Seen from any angle, on facts as well as on law, the judgment and sentences passed by the lower Court cannot be upheld. Accordingly they are set aside.

The Criminal Revision case is allowed.